How to Build Business Credit for Better Loan Terms

A strong business credit score allows the business to access better terms on loans and insurance and potentially even negotiate better agreements with suppliers.

Need a business loan to jumpstart your growth? Explore various options and compare rates with our guide to the best business loans.

Key Insights

• Business credit scores impact loan terms, insurance rates, and supplier agreements.
• Building business credit involves registration, getting ID numbers, and establishing credit lines.
• Monitor credit reports to spot errors and improvement areas; free reports are available.
• Strong business credit leads to better terms, rates, and access to financing.

What Is Business Credit?

Business credit, much like a personal credit score, is a rating that measures a business's creditworthiness and likelihood to repay debts on time. Lenders, insurers, and suppliers use business credit scores to assess the risk of doing business with your company and determine what terms to offer.

A strong business credit score can lead to:

• Better terms with suppliers: Some suppliers may offer more favorable payment terms, such as discounts or longer payment periods.

• Lower interest rates: Lenders may offer lower interest rates to businesses with good credit.

• Better insurance rates: Due to lower perceived risk, insurance companies may reduce premiums on business liability, property, and other commercial coverage.

• Easier access to financing: When applying for a business loan, a good credit score significantly improves your approval chances for credit lines and equipment financing, often with higher borrowing limits.

Building and maintaining a good credit score indicates a history of responsible borrowing and timely payments, setting up your business for financial success.

How Do You Build Business Credit?

Building a strong business credit score requires consistent responsibility and effort across several key areas. Below, we discuss these areas and how to optimize your credit score in each category.

1. Register Your Business and Get an EIN

The first step is to register your business as a separate legal entity. This step establishes your business finances independently from your personal accounts. During registration, you'll get an Employer Identification Number (EIN) from the Internal Revenue Service (IRS). This unique tax ID is essential for opening business bank accounts, establishing credit, and filing taxes.

2. Apply for Business Credit

Dun & Bradstreet is the leading business credit bureau. Getting a Dun & Bradstreet Universal Number System (DUNS) number is a crucial step in building your credit profile. This 9-digit identifier links your business to the credit bureau. Lenders and creditors use this number to report payment history and track your creditworthiness. You can apply for a free DUNS number online.

While D&B exclusively focuses on business credit, two other major credit bureaus also track business credit scores: Equifax and Experian. Consider establishing your business with all three bureaus to build a comprehensive credit profile.

3. Open a Business Credit Card

The next step is to open a business credit card and manage it responsibly. Doing this consistently over time is an excellent way to build your business credit. Look for cards with cash back, discounts, or rewards points that match your needs. Always pay the card on time, and consider setting up autopay so you never miss a payment.

Popular credit card rewards types include:

• Category cash back: Earn higher rewards on specific business expenses like office supplies, utilities, internet services, and gas.
• Travel rewards: Redeem flight points, hotel stays, and car rentals.
• Flat-rate cash back: Earn the same percentage on all purchases, providing simple, predictable returns.

4. Establish Trade Lines or Net-30 Accounts With Your Suppliers

Building strong relationships with suppliers can lead to trade credit opportunities. Once established, these accounts (often called net-30, net-60, or net-90 accounts) allow you to pay for goods or services within an agreed-upon time period after delivery—typically 30, 60, or 90 days.

Trade credit offers two major benefits: It helps manage cash flow by giving you time to pay for supplies, and it builds your credit history when suppliers report your timely payments to business credit bureaus.

5. Choose Lenders That Report to Business Credit Bureaus

Whether you're comparing different types of business loans, lines of credit, or financing on purchases, prioritize lenders who report your repayment activities to business credit bureaus like Dun & Bradstreet. This allows your positive payment history to contribute to building a strong credit score over time.

6. Check and Monitor Your Credit

Regularly reviewing your business credit reports from Dun & Bradstreet and other credit bureaus is essential for maintaining a strong credit profile. This monitoring helps you identify errors that could hurt your score.

Plus, it shows which factors you can improve. Most credit bureaus offer free business credit reports that detail your score and its contributing factors.

Bottom Line

Building a strong business credit score takes time and dedication, but it’s a worthwhile investment for your business's long-term success. By following these steps and managing your finances responsibly, you'll establish a credit profile that opens doors to better opportunities:

1. Register your business and get an EIN
2. Apply for business credit with Dun & Bradstreet and get a DUNS number
3. Open a business credit card
4. Establish trade lines with suppliers
5. Choose lenders that report to credit bureaus
6. Check and monitor your credit

Building a great credit score will allow you to access better loan terms from financial institutions, favorable rates with insurance providers, potential discounts, and better payment terms with suppliers.